Palantir Technologies: Continued traction in the US commercial business

Palantir Technologies has reported a positive start to the year, with rapid traction in the US business. US commercial continues to drive revenue, with an impressive rise in clients, amidst increased software applications in commercial enterprises. As a result, in its latest quarterly period, the group reported the highest US commercial TCV.

Palantir Technologies Inc., founded in 2003 and headquartered in Denver, Colorado, is a software company that focuses on building software platforms to help organizations integrate their data, decisions, and operations at scale. The company has built four principal software platforms: Palantir Gotham, Palantir Foundry, Palantir Apollo, and Palantir Artificial Intelligence Platform (AIP).

Gotham and Foundry supports organizations to transform large information into an integrated data asset, providing crucial insights into operations. On the other hand, AIP leverages existing machine learning technologies alongside generative AI models to help operationalize AI on enterprise data. Apollo, started as a commercial solution in 2021, helps in the ongoing delivery of new securities updates, features, and platform configurations.

Geographically, the US represented 66% of FY 24 revenues, while the UK made 11%; segment-wise government contribution was at 55%, and commercial revenue at 45%.

Continued rise in US commercial revenue in Q1 25

The company posted a solid 39% y/y growth in revenues to $884m, driven by 55% increase in US revenue to $628m. Revenues from US commercial continued to accelerate, jumping 71% to $255m, while US government revenue surged 45% to $373m. US commercial deals of at least $1m closed over the quarter rose 2x, while overall closed deals in this bracket stood at 139. Furthermore, 51 deals of at least $5m and 31 deals of at least $10m were closed during the period.

Operating income jumped 118% to $176m, with margins expanding by an impressive 7.2% to 20%. Palantir Technologies posted its highest ever quarter of US commercial TCV of $810m, reflecting a robust 183% rise from the prior corresponding period. Total RPO stood at $1.9bn as at end-Q1 25, with billings at $905m during the quarter. The group’s customers increased significantly from 554 as of March 31, 2024, to 769 as of March 31, 2025, with commercial customer count at 622, signaling the rapid demand and application for the company’s software offerings in the commercial space.

Encouraging guidance

Palantir Technologies anticipates registering revenues between $934m and $938m in Q2 25, and adjusted income from operations between $401m and $405m. For the full year, the group expects to post revenues between $3.89bn and $3.90bn, with US commercial revenue reaching over $1.17bn, reflecting a growth of at least 68%. Adjusted income from operations is anticipated between $1.71bn and $1.72bn and adjusted free cash flow between $1.6bn and $1.8bn in FY 25.

Turnaround in performance over the long term

The company posted solid long-term revenue growth, registering a CAGR of 31% over FY 19-24, reaching $2.9bn. Operating income also staged a big turnaround - from minus $553m in FY 19 to positive $310m in FY 24, with margins reaching 10.8%. Net income posted a similar performance, reaching $462m in FY 24 from minus $580m in FY 19.

The cash position of the group also strengthened over the same period, reaching $2.1bn at end-FY 24 from $1.1bn at end-FY 19, supported by a steady increase in operating cash flow over the last four years. Regular equity infusion also helped to shore up cash reserves. As a result, total debt to equity decreased considerably from 270% at end-FY 19 to 4.7% at end-FY 24.

In comparison, Synopsys, a local peer, posted a revenue CAGR of 12.8% over the last five years, reaching $6.1bn in FY 24. Operating income surged at a CAGR of 19% to $1.4bn in FY 24, with margins expanding by 5.8% to 22.1%.

Prolific stock returns

Palantir Technologies’ stock has soared approximately 412% over the past 12 months, reflecting strong fundamental trajectory and investors’ optimism on the company’s prospects. In comparison, Synopsys’ stock fell by about 14% over the same time.

The sharp run-up in share prices has pushed the valuation higher compared to both its historical average and Synopsys. Palantir Technologies is currently trading at a P/E of 392x, which is higher than its 2-year historical average of 294.5x and Synopsys’ valuation of 51.5x. The company is currently trading at an EV/EBIT multiple of 177x, higher than that of Synopsys (28x).

Palantir Technologies is monitored by 25 analysts, four of whom have ‘Buy’ ratings and 15 have ‘Hold’ ratings for an average target price of $101.3. However, the recent rise in the share's price means that its target price has already been achieved, implying limited upside potential. However, any corrections in share price in the near term could provide a decent potential buy opportunity.

Analysts’ views are further supported by an anticipated EBIT CAGR of 38.4% over FY 24-FY27, reaching $2,991m, with margins of 45.4% in FY 27. In addition, analysts estimate a net profit CAGR of 55.8%, reaching $1,749m with margins of 26.5% in FY 27, with EPS expected to increase to $0.64 in FY 27 from $0.19 in FY 24. Likewise, analysts estimate EBIT CAGR of 15.5% and net profit CAGR of 16.4% for Synopsys.

Overall, the company appears set to post long term growth, leveraging industry tailwinds amidst a tectonic shift in the adoption of its software. However, Palantir Technologies is prone to some risks, including risks of revenue slowdown, risk of AI error, and heightened competition in the space.